Swiss franc higher, CPI next

The Swiss franc has started the week with gains. In the North American session, USD/CHF is trading at 0.9048, down 0.40% on the day at the time of writing. The Swiss franc rose as much as 0.86% but has pared much of those gains.

Retail sales in Switzerland climbed 0.8% y/y in November, missing the market estimate of 1.2% and the upwardly revised 1.5% gain in October. This was the lowest level since June. Monthly, retail sales fell 0.1%, after a gain of 0.1% in October.

Swiss inflation expected to continue to decline

Switzerland is experiencing deflation and the Swiss National Bank will be keeping a close eye on the December CPI report which will be released early Tuesday. Monthly inflation has decreased by 0.1% for two consecutive months and December CPI is also expected at -0.1%.

Another decline in inflation could have major implications for the central bank’s rate policy. Ahead of the SNB’s rate decision in December, it was unclear if the Bank would lower rates by 0.25% or 0.50%. The November inflation report may have been the decisive factor in the SNB’s decision to chop rates by 0.50%, the biggest cut in 10 years.

The SNB doesn’t meet again until Mar. 30 but monthly inflation hasn’t posted a gain in seven months, raising concerns that inflation could fall below the SNB’s target range of 0-2%. The cash rate is currently at 0.5% but the SNB won’t hesitate to restore negative rates in order to prevent inflation from falling below target.

The US releases Final Services PMI later today. The market estimate for December stands at 58.5, compared to 56.1 in November. This points to strong business activity, which has been the linchpin of the US economy.

USD/CHF Technical

• USD/CHF has pushed below support at 0.9066 and is testing support at 0.9047. Below, there is support at 0.9015
• There is resistance at 0.9098 and 0.9117

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